Will CPP Survivors Receive More Soon?

Evelyn Jacks

The April 16, 2023 federal budget made brief mention of potential enhancements to the Canada Pension Plan (CPP).  The CPP death benefit, in particular, is in the spotlight. At $2,500, it has been unindexed, and it is sorely lacking for the funding of funeral expenses.  Here is what survivors can expect to receive under current rules, and what to look for as CPP enhancements are announced over the next several months to improve benefits available:

The Proposed Technical Changes.  The federal government announced it reached an agreement with the provinces to make technical amendments to the CPP legislation to enable:

• a top-up to the Death Benefit for certain contributors;
• a partial children's benefit for part-time students;
• extended eligibility for the disabled contributors children's benefit when a parent reaches age 65; and,
• ending the eligibility for a survivor pension to people who are legally separated after a division of pensionable earnings.

There were no further details in the budget at the time of writing, but it is expected that the death benefit will double for some CPP contributors.

Survivor Benefits – Current Rules. Currently there are three types of benefits provided to survivors of a contributor to the CPP:

• The spouse’s survivor pension is a monthly pension paid to the deceased contributor’s spouse or common-law partner. The amount received depends on several factors including whether the spouse/common-law partner is already receiving CPP, what the age of the spouse/common-law partner is, how long the contributor contributed to CPP and how much was contributed.  It’s important to point out that a surviving spouse who is also a contributor will not get two pension – just a top -up to the maximum if that survivor is also collecting CPP, as, further explained below.
• The children’s benefit is paid to a child who has lost at least one parent who met certain CPP contribution requirements.  Amounts received are added to the child’s net income, which could affect a single parent’s claim for the Amount for Eligible Dependants.
• The lump sum death benefit.As mentioned is a one-time, lump sum payment made to the deceased contributor’s estate and flowed through to the beneficiary, generally the spouse. This benefit used to be equal to six months worth of the calculated CPP the individual would have received, up to a maximum of $2,500.  Now it is a single lump sum but there are criteria for qualification.  The deceased must have contributed for:
  • one-third of the calendar years in their contributory period for the base CPP, but no less than 3 calendar years, or
  • for 10 calendar years

Who pays the tax?  Survivor benefits are generally taxable to the recipient.  However, the lump sum death benefit may be reported on the return of the estate.

In that case, the executor named in the will or the administrator named by the Court to administer the estate will apply for the death benefit. This should be done within 60 days of the date of death. According to Employment and Social Development Canada, if no estate exists or if the executor has not applied for the death benefit, payment may be made to others in the following order of priority:

• The person responsible for paying for the funeral expenses of the deceased
• the surviving spouse or common-law partner of the deceased, or
• the next-of-kin of the deceased
• A registered trustee, guardian, or other legal representative, may also act on a client’s behalf

The calculations of these benefits are discussed in the Knowledge Bureau’s DMA™ Retirement Income Services Specialist program and are part of the CE Savvy Summit Retirement & Estate Planning Course.  Register here!

Calculation of Survivor Benefits.  When the survivor turns 65, the survivor will receive 60% of the deceased spouse’s pension entitlement.  However, the survivor will not receive more than the maximum monthly retirement benefit payable when their retirement and survivor pensions are combined. 

The CPP enhancement component is not subject to the maximum indicated above, so in this case, the maximum combined survivor and retirement for 2024 would be $1,375.41 per month.

The government will first calculate the retirement pension the deceased is entitled to – or would have been entitled to – if they had been age 65 at the time of death. Next a calculation is done based on the survivor's age at the time of the contributor's death.  They summarize this as follows:

• Survivors age 65 or older:will receive 60% of the contributor's retirement pension, (if they are not receiving other CPP benefits.)
• Survivors under age 65: will receive a flat rate portion and 37.5% of the contributor's retirement pension, (if they are not receiving other CPP benefits).

When other benefits are being received the calculation is as follows:

• The most that can be paid to a person eligible for both the disability pension and the survivor's pension is the maximum disability pension (which is more than the maximum survivor's pension).
• The most that can be paid to a person who is eligible for the retirement pension and the survivor's pension is the maximum retirement pension (which is more than the maximum survivor's pension).

Child’s Survivor Benefits.   A benefit will be paid to the children of deceased or disabled workers while they are under age 18 or under age 25 if they are attending school.  These benefits are taxed in the child’s hands and may affect the equivalent-to-spouse (known as the Amount for Eligible Dependant) tax credit. 

Make a Difference. Be sure to use the Knowledge Bureau’s Income Tax Estimator to determine what effects, if any,  the amounts received by children will have on single parents claiming the Amount for Eligible Dependants.  The CPP Income Estimator is also helpful.  You can access both as part of the Tax Tip Toolkit.

Also, be sure to save the amounts received for minor children in an in-trust account in the name of the child.  Earnings on these earnings are taxed in the hands of the child, which means, they are usually tax free, but could affect their single parent’s claims for other non-refundable credits.